Can you lock in a fixed home loan rate if you're still looking for a house?

You may like the idea of locking in a fixed interest rate to make sure your home loan repayments stay consistent for a pre-set length of time. However, the lender may alter its fixed rate deals in the time between getting preapproved for a home loan and finding a property you want to buy. However, it may still be possible to lock in your fixed rate by paying a rate lock fee. 

What is a rate lock fee?

A rate lock fee is a charge you pay a mortgage provider to avoid being stung by interest rate rises during your property search. By paying this fee when you receive home loan preapproval, the lender will be required to offer you the original advertised interest rate when you eventually apply for unconditional approval, regardless of whether the lender has raised its fixed and variable rates in the meantime. 

If the bank drops its rates then you’ll still be offered the lower rate on your home loan, but the rate lock fee will not be refunded.

A rate lock fee typically lasts around 90 days, though this can vary between lenders. The exact fee charged to lock in a fixed rate may also vary – some lenders charge a fixed rate lock fee, while others calculate the fee based on a percentage of the amount being borrowed. A small number of lenders may offer to lock your fixed rate free of charge. 

Why pay a rate lock fee?

One of the main reasons to opt for a rate lock fee is when you’re concerned rates will rise in the time between when you first apply for a home loan and when you are approved. This can help give you peace of mind, as if rates change during your search for a the perfect home, you won’t have to compromise on your choice of property or scramble to find alternative finance. 

Paying a rate lock fee could also potentially save you a lot of money in the long run. In November 2021, RateCity analysis found that on a $500,000 loan with a 3-year fixed rate at 2.26 per cent, if the rate rose to 2.46 per cent before the application was processed, borrowers would pay an extra $2,935 over this term if they don’t lock in their rate. In this scenario, the borrower would have been better off if they paid the typical rate-lock fee of up to $750. However, that is only if the lender hikes rates in that time.

As rate lock fees come at a price, you’ll need to weigh up the costs and compare home loans so you’re confident that you’re getting the best home loan available for your financial situation. If you’re not sure whether paying a rate lock fee will be an ideal choice for you, you could consider seeking advice from a mortgage broker.

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